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Acquisition vsus de novo entry: A theoretical appraisal

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  • Tarola, Ornella

Abstract

In this paper we generalize the approach developed in the context of banking competition by Gabszewicz et al. (2011). In an entry/acquisition game, we allow the potential entrant in a vertically differentiated market to offer a variant lying at any level of the quality ladder and playing a priori either the role of acquirer or acquired firm. This more general approach enables to give account of a wider set among the different types of acquisitions taking place worldwide. Not only does it constitute a natural toolbox for representing the choice between acquisition vsus greenfield considered in trade theory, but it also allows to capture the exchange of innovation's ownership via acquisition, as analyzed in the literature of innovation.

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Bibliographic Info

Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 67 (2013)
Issue (Month): 2 ()
Pages: 179-188

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Handle: RePEc:eee:reecon:v:67:y:2013:i:2:p:179-188

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Web page: http://www.elsevier.com/locate/inca/622941

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Keywords: Vertical differentiation; M&A; Entry; Innovation;

References

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  1. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
  2. Pehr-Johan Norbäck & Lars Persson & Roger Svensson, 2013. "Creative Destruction and Productive Preemption," CESifo Working Paper Series 4075, CESifo Group Munich.
  3. Raff, Horst & Ryan, Michael & Stähler, Frank, 2005. "Asset Ownership and Foreign-Market Entry," Economics Working Papers 2006,01, Christian-Albrechts-University of Kiel, Department of Economics.
  4. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Joshua S. Gans & David H. Hsu & Scott Stern, 2002. "When Does Start-Up Innovation Spur the Gale of Creative Destruction?," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 571-586, Winter.
  6. Ralph Siebert, 2003. "The Introduction of New Product Qualities by Incumbent Firms: Market Proliferation versus Cannibalization," CIG Working Papers SP II 2003-11, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  7. Eicher, Theo & Kang, Jong Woo, 2005. "Trade, foreign direct investment or acquisition: Optimal entry modes for multinationals," Journal of Development Economics, Elsevier, vol. 77(1), pages 207-228, June.
  8. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  9. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
  10. Wauthy, Xavier, 1996. "Quality Choice in Models of Vertical Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 345-53, September.
  11. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 485-511, December.
  12. Thomas Müller, 2007. "Analyzing Modes of Foreign Entry: Greenfield Investment versus Acquisition," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 93-111, 02.
  13. Görg, Holger, 1998. "Analysing Foreign Market Entry: The Choice between Greenfield Investment and Acquisitions," Economics Technical Papers 981, Trinity College Dublin, Department of Economics.
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Cited by:
  1. Vera Rocha & Anabela Carneiro & Celeste Amorim Varum, 2013. "Entrepreneurship Dynamics: Entry Routes, Business-Owner's Persistence and Exit Modes," CEF.UP Working Papers 1310, Universidade do Porto, Faculdade de Economia do Porto.

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